Summary

While it’s natural to treat real estate as a fixed cost, that’s a mistake that can cost organizations the opportunity to save money and make better choices about locations and facilities. Achieving a higher return from money spent on corporate facilities requires some organizational and process changes, though. Organizationally, it means taking the time to consider options and centralizing occupancy management as a shared service. Technologically, it requires ensuring that all relevant data is readily accessible through a dedicated application – not spreadsheets – to manage the administration of these sites. We advise organizations to consider these points and evaluate what making the necessary changes could contribute to their bottom line.

View

Reducing occupancy and ownership costs requires taking a more active approach to managing real estate and occupancy, something relatively few organizations do. We suggest they take a lesson from the industries that do this best – those in which occupancy costs are one of the top three expense categories, such as retailing or consumer-oriented financial services. One notable aspect of their approach is that these businesses often have departments responsible for managing leasehold costs, site selection and other aspects of occupancy. Other businesses can adopt this specialization as well to control expenses more effectively.

Achieving that also requires other organizational and process changes, such as centralizing occupancy management as a shared service. For example, large companies may have a substantial number of offices and other leased locations that, when taken all together, offer a sizable opportunity for managing their utilization and cost more advantageously. Yet most distribute the responsibility for handling these sites across divisions, business units or even more widely dispersed. Managing real estate across the entire company as a shared service is a more efficient approach. A central real estate management function can support all of the business units’ real estate decisions, monitoring and managing enforcement of lease terms and conditions as well as enabling a more long-term, strategic approach to facilities.

Software designed specifically for managing real estate has many of the routine functions users need and often captures better practices than most companies are using. For example, many companies could make better-informed decisions when it comes to arranging or renewing leases. Typically, the individuals who are responsible for a particular site or business unit rely on brokers to keep them in touch with real estate availability and market conditions. Software that taps into commercial real estate databases can provide additional insight and analysis to enable companies to negotiate better terms than they might otherwise. Moreover, these applications keep track of other provisions that can save money, such as those limiting assessments or funding improvements for structural enhancements beyond an initial build-out. A software-supported shared service approach also can do a more effective job of handling day-to-day administrative tasks such as managing maintenance and construction costs or optimizing space utilization across the organization.

Spreading the cost of dedicated software across the entire organization makes such an approach more affordable, and automating what was formerly a manual process makes it more effective. It ensures that processes are handled consistently, deadlines are anticipated and follow-throughs are performed.

Assessment

Occupancy expense is an item that many companies watch but do not have the methodology and capabilities to manage well. While it makes little difference in situations where a company’s occupancy costs are a small percentage of operating expenses or if it operates in a small number of locations, it can make a significant difference to many Global 2000 companies These companies can benefit from taking a more active and strategic approach to managing their occupancy costs, both by reducing ongoing expenses and having sites that better suit their needs.